The Effect of Credit Risk Management On Financial Performance: Evidence from Selected Micro Finance Institution in Eastern Ethiopia.

The main purpose of the study was to The effect of Credit Risk Management on Financial Performance of selected micro finance institution in eastern Ethiopiafrom 2006/07-2020/21.The study only uses the quantitative approach and explanatory research design. In the model the researcher defined ROA as performance indicator while diversification, capital adequacy ratio, credit risk, credit scoring and non performing loans ratio as credit risk management indicators. Data was obtained from secondary sources primarily from annual report of selected micro institutions. Correlation and regression analysis were conducted to determine relationship between dependent and independent variables. The finding of study shows capital adequacy ratio, non-performing loans ratio, and credit scoring had found statistically significant factor to determine performance of selected micro finance institutions during study period. Among those variables the capital adequacy ratio is have positive effect on financial performance. On the other hand, among the five explanatory variables, two measure of credit risk management named as diversification and credit risk has found to be statistically insignificant predictor of ROA. This study recommended managers of selected-micro finance institutions to reduce non-performing loans by using; group lending, standing notifications, continuous monitoring and legal procedures. To attain better performance in micro finance institution could focus in activities that guard the credit of institution. Before extending credit they should carefully assess creditworthiness of their customer and monitor up to full repayment of their debt.